Parity Push

by | Mar 13, 2015

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Neil Davies, Head of Trading at PlutusFX, takes a look at the EUR/USD currency pair:

There’s much talk of EUR/USD hitting 1:1 in the near future in the press at the moment. Currently sitting at 1.06, the decline in the Euro has certainly accelerated of late with the great wash of Euro’s flooding into the monetary system to the extent that there may well not be enough bonds available for the European QE to buy.

However, yesterday morning saw a little light relief for the pair, as US retail sales have come in weaker than expected. The month on month February figures came in at a negative 0.6% against an expected positive figure of 0.3%. Conversely though, US jobless claims figures came in marginally better than expected, with the claim count at 2.418m, against a figure of 2.421m for the previous month.

The 12-year low for the Euro was hit yesterday, touching $1.056, so it would appear that the effect of QE has been front run by the currency itself, with the desired effect being achieved. European exporters will be revelling in their good fortune, as will be investors in European bourses, the DAX for example hitting a new all time high nearly every day and gaining over 21% in just the last two months alone.

It does though draw the question of just how far can this go? It’s quite possible that behind the headlines there is pent up inflation, which will only be realised in 2016. If that’s the case, the Germans above all, with their own past history of crippling inflation, will be quick to call for a reversal of both QE and rates.

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